Startup Funding Club SEIS Fund

The Startup Funding Club SEIS Fund aims to invest in a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits. The team targets a return of 3x, not guaranteed.

Originally set up as an angel syndicate in 2012, SFC Capital (previously Startup Funding Club) is now one of the most active seed investors in Europe, having invested in over 400 companies. 

Funds from previous years have now started to generate exits and return cash to investors. Cognism, a machine-learning driven marketing platform, is one example. The SEIS fund has sold approximately two thirds of its stake at an average 39.9x cost. Overall, the manager has completed 10 full or partial exits from SEIS-qualifying investments through a mixture of trade sales, share buybacks and secondary buyouts. Past performance is not a guide to the future – there have also been failures. 

Investors have historically received a portfolio of around 20 companies across a range of sectors, including digital technology, life sciences and consumer goods. Please remember most of the businesses are very early stage with little or no revenue, making them very high-risk. 

• Target return of 3x after five to eight years (not guaranteed)
• Targets a portfolio of at least 10 companies (averaging over 20)
• Minimum investment £10,000 – you can apply online
• Next targeted deployment: Q1 2024, deadline 15 December 2023

The manager

SFC Capital (“SFC”) is an angel investment club focused on very early-stage businesses. It identifies companies for investment and provides them with ongoing support and expertise. 

SFC launched one of the UK’s first SEIS funds in 2013. Since then, it has become a prolific seed investor, facilitating investments into 400 early-stage companies across a broad range of sectors. A 2022 report from PitchBook Data named SFC the fourth most active Angel & Seed investor in Europe, behind investors such as the Irish and French government investment arms. 

The SFC angel network is a group of over 500 active angel investors from various backgrounds, many with direct experience in building and investing in successful young companies. They co-invest alongside the fund and bring additional experience to the portfolio. SFC has also forged ties with some of the country’s leading universities and startup accelerators to broaden its deal flow.

The SFC team is headed up by Stephen Page, CEO. Stephen has founded and exited several software businesses and is supported by Chief Investment Officer Joseph Zipfel whose background is in investment banking and corporate finance. The wider team and board of directors of SFC have backgrounds in investment banking, software, corporate finance, and entrepreneurship. In total the team consists of 16 individuals, most of whom are actively involved with investment decisions.

SFC Capital Ltd, an appointed representative of SFC Capital Partners Ltd, is the investment adviser to the fund, which is managed by Kin Capital Partners LLP. Before your subscription is invested, the cash will be held by the custodian, Kin Capital Partners LLP. Shares will be held by the nominee, KCP Nominees Limited.

Investment strategy

The Startup Funding Club SEIS Fund aims to back a portfolio of very early-stage companies with innovative products and disruptive technologies which have the potential to generate successful exits and a fund target return of 3x, not guaranteed.

Companies will typically be less than two years old at the point of investment, with an initial version of their product or service. They may have signs of early commercial traction but usually little or no revenue. At this point, valuations tend to be lower and the risks very high. 

SFC seeks to acquire meaningful strategic shareholdings in each company, so as to be able to influence the management of these ventures and put the right expertise, support and governance structure in place from the beginning. This includes attending board meetings (either as observer or director) and establishing connections within the SFC Alumni and SFC Partner Network to provide advice and services to portfolio companies.

SFC aims to exit investee companies within five to eight years, not guaranteed.

Portfolio

Investors in the current iteration of the fund can expect exposure to a minimum portfolio of 10 companies, however, tranches could be significantly larger – with SFC estimating an average of 20 companies per investor. As a generalist fund, investee companies will operate across various sectors including digital technology, life sciences and consumer goods. 

Below are portfolio company examples from previous iterations of the SEIS fund. They are outlined to give a flavour of the types of companies SFC might invest in, but are unlikely to be part of a new investor's portfolio. SEIS funds tend to be managed on a discretionary basis so each individual portfolio is likely to be different. 

Soil Benchmark – recent investment

UK farmers regularly sample their soils, but often simply use the data to determine which fertilisers are required. Anything else, from monitoring changes and soils’ health, is valuable but difficult and time consuming.

Soil Benchmark brings together farmers’ own data with third party sources in a single, easy to use platform. Through the platform, farmers can generate soil management plans, benchmark their soils against others and view historic data series covering everything from climate to topography.

The company was founded in 2022 by Tom Scrope, formerly UK Manager of biofertiliser company Nova Q, and Benjamin Butler, a former soil scientist at the James Hutton Institute. After initial backing from DEFRA, Ordnance Survey and the European Space Agency the company is now working with farms covering over 115,000 acres.

SFC first invested through its SEIS fund in March 2023, and followed on through the EIS fund around a month later. 

Penny

Defined contribution pensions, auto-enrolment and a working world where someone might have a dozen or more employers in a lifetime, all mean it’s become increasingly difficult to keep track of the pension pots you build up over the years.

The Association of British Insurers recently estimated that there could be £26.6 billion worth of lost pensions in the UK – an increase of £7 billion in just four years.

Founded in 2019, Penny allows users to track down and consolidate pensions from past employers in a single easily managed platform. A user can choose to invest their combined pension into one of three plans managed by either HSBC or Vanguard. Penny recently won Most Innovative Company of the Year at the Financial Services Forum 2023 Awards for Innovation and Transformation.

The SFC SEIS fund invested in April 2020. In 2022 the company raised £4 million from investors including Monzo founder Tom Blomfield and Gradient Ventures, Google’s AI investment fund, at a £27.8 million valuation. The investment is currently held at 9x investment cost. Past performance is not a guide to the future.

Cognism – example of previous exit

Cognism is one of the UK’s fastest-growing technology companies. It has developed software that uses machine learning to help sales and business development professionals find prospects. 

The business was founded in 2015 by CEO James Isilay and CTO Stjepan Buljat. SFC took part in the first funding round in 2017 through its SEIS fund and followed on in 2018 through its 2017/18 EIS Fund. 

At the time of SFC’s first investment, Cognism had recurring revenues of £4,500. In 2022, it announced annual recurring revenues were over $20 million. It also appeared in the Deloitte Fast 50 2022, a list of the UK’s fastest growing private technology companies.

In January 2022, Cognism announced it raised $87.5 million in a deal led by American investment group Viking Global Investors. The deal valued the business at more than £200 million. SFC has sold a sizeable portion of its stake in the business at 39.9x cost while retaining 35% of its stake in the business. Past performance is not a guide to the future. 

Restaurant Kits – example of previous failure

As with any SEIS company, these are high-risk investments and not all will work out as planned. Restaurant Kits is an example. 

Restaurant Kits was a platform that allowed restaurants to create, promote, and sell their meal-kits, helping them diversify their revenue streams, especially during the Covid-19 pandemic. 

The SFC SEIS Fund invested in November 2020 as part of the company’s pre-seed funding round. The company generated strong growth during the first year following investment, reaching over £200,000 in monthly revenues.

Unfortunately, the company was very sensitive to fluctuations in consumer demand, which were particularly high as lockdown regulations were lifted. The company suffered from decreasing revenue and high fixed costs which eventually made it insolvent in its second year of trading. 

Performance

Early-stage investments can take time to mature – SFC expects investment holding periods of up to eight years. Now, around nine years from SFC’s first SEIS fund, there appear to be some encouraging signs. Unrealised returns are attractive in our view and several investments have achieved profitable exits, enabling the fund to start returning some capital to investors. 

Cognism (above) and internet of things specialist Vortex IoT, are two notable successes, showing overall returns of 39.9x and 8.4x respectively and boosting realised returns from the 2016/17 and 2017/18 tranches. On average, investments made more than five years ago (2013/14 to 2017/18) have generated approximately £204.30 in unrealised returns (before tax relief), and £26.82 in realised returns, for every £100 invested. Note: past performance is not a guide to the future. 

The chart below shows the average performance of the total subscribed into the funds in each full tax year from 2012/13 (or from when the current strategy was adopted if later) to 2022/23. The chart is based on the latest valuations provided by the manager, expressed on a £100 invested basis. Please note, individual investor portfolios’ performance will deviate from the average.

Performance per £100 invested in each tax year

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

SEIS investments are high-risk and should only form part of a balanced portfolio. As must be expected with early-stage investments, some or even all of the companies in the portfolio could fail: the fewer the companies included in the portfolio, the higher the risk of loss if things don’t go to plan. You should not invest money you cannot afford to lose.

There is no ready market for unlisted SEIS shares: they are illiquid and hard to sell and value. There will need to be an exit for you to receive a realised return on your investment. Exits are likely to take considerably longer than the three-year minimum SEIS holding period; equally, an exit within three years could impact tax relief.

To claim tax relief, you will need SEIS3 certificates, normally issued once shares have been allotted. This can take several months: please check the deployment timescales carefully. Tax reliefs depend on the portfolio companies maintaining their SEIS-qualifying status. Remember, tax rules can change and benefits depend on circumstances.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Charges

A summary of the main charges and savings is shown below. Some of these will be payable by the investor, whilst others by the investee companies. The investment may have additional charges and expenses: please see the provider documents, including the Key Information Document, for more details.

Our view

There are several reasons why this fund stands out, in our view. 

It benefits from strong ties with leading universities and accelerator programmes. Combined with its own angel network, that gives the investment team access to a strong pipeline of deals. 

To support this deal flow, the business has developed a highly efficient investment process that allows it to complete hundreds of investments per year, making SFC one of Europe’s leading startup investors (by number of investments made), and a destination for founders seeking capital. 

This is relevant to investors considering SEIS for two reasons. 

Firstly, SFC’s deal flow means it can build a diversified portfolio. Diversification is important and should be welcome, especially considering the fund invests at a very early stage, when risks are highest. The additional SEIS3 paperwork involved is simplified somewhat by a tax summary that SFC provides.

Secondly, having a healthy pipeline of new deals means the fund should be able to deploy investors’ money in a timely manner, making tax planning easier. Indeed, SFC has not missed a deadline for investing subscriptions in nine years – although there is no guarantee for the timing of future deployments.

Investments made within SEIS funds from earlier tax years are starting to bear fruit. The partial exit from Cognism (above) and full exit from Vortex IoT, have delivered substantial realised gains to investors in the 2016/17 and 2017/18 tranches, while other funds are also showing strong paper gains. Past performance is not a guide to the future. 

This offer could appeal to experienced investors who are happy with the high risks of SEIS investment and keen to get exposure to the bright new businesses of tomorrow.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.